restrictions on share transfers - shares in demat mode !!

[yoganand l]

- AoA of a company has placed certain restrictions on the transferability of shares pursuant to a shareholders' agreement
- shares of the company are in demat mode

query :
how can the company control the share transfers (the shareholder can simply execute an off market transfer)


regards,
yogan.

[Madhwesh K]

Dear Mr. Yoganand,

 

Please take note of the following provisions of the law:

 

1. Section 108 of the Act provides for execution of transfer deed...etc. Sub section (3) of the said section exempts demated shares from applicability of this section.

 

2. Section 111A of the Act provides that - shares of a public company are freely transferable and Board of the Company or the Depository has no descretion in withholding or refusing such transfer

 

3. Section 111A further provides that - where any transfer is effected in contravention of any law for time being in force, then the company / depository / SEBI...etc may apply to CLB to nullify the transaction and rectify the register of members (including beneficial owners kept at deository). However, such application shall be made within 2 months from the date of receipt of instrument of transfer (i.e., offmarket transfeer slip in case of demat shares).

 

Now, in your case:

 

1. If the subject company is a private company, there is no question of transferability without Board's approval, whether the share is in demat mode or not. If the demat shares are transferred without such Board approval, the transaction can be held null and void in the court of law (whether civil court or CLB).

 

2. If the subject company is a public company, any such shareholder agreement / provisions of AOA would be normally intimated by company to the depository and the depository will put proper checks to ensure such transfers are not effected. Hence, even if the shareholder submits offmarket transfer slip through his DP, the depository will reject the same.

 

3. If the subject company has not intimated such restriction to depository and if the shareholder is succeful in transfering his demat shares, then the company may apply to CLB as stated above. Hence, it is advisable to intimate depository - of the restrictive clauses - in order to avoid hassels. As a matter of fact, as rightly mentioned by you, the company will not come to know the transfer effected by the depository unless the company takes list of beneficial ownership / details of transaction periodically from depository.

 

Member's views solicited.

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Thanks and Regards,

Madhwesh K

Practicing Company Secretary

9980672126

#180, 31st Cross,

Jayanagar 4th T Block,

Bangalore - 11

[yoganand l]

can some one enlighten me how to intimate to the depository about the restrictions on the transfer of shares. if anyone has practically done this, kindly let me know of the same.


regards,
yogan